This is the eighth edition of the Commission’s Report on European Competitiveness since the 1994 Industry Council Resolution that established the basis for the Competitiveness Report. As in recent editions, competitiveness in this Report is understood to mean a sustained rise in the standards of living of a nation and as low a level of involuntary unemployment possible. The special theme of this Report concerns the impact of public policies on economic performance. Both because of its size and of its involvement in economic life the public sector exerts an important influence on economic performance. The first three Chapters of the Report review the impact of the public sector on productivity growth, the role of public sector funding in research and development and the performance of the health sector, a key component of the public sector. The following, Chapter 4, reviews recent developments in the European automotive sector, a key sector in Europe’s industrial structure, where government regulation is significant and where competitiveness improvements have been realized in recent years. The final, Chapter 5, discusses the growing integration of China in the world economy and its implications for the European economy. These implications are most pronounced in the case of the new Member States which are increasingly competing with Chinese exports.